Pub 535

You can generally deduct all interest you pay or accrue during the tax year on debts related to your trade or business. Interest relates to your trade or business if you use the proceeds of the loan for a trade or business expense. It does not matter what type of property secures the loan. You can deduct interest on a debt only if you meet all of the following requirements.

• You are legally liable for that debt.
• Both you and the lender intend that the debt be repaid.
• You and the lender have a true debtor-creditor relationship.

Generally, the amount you can deduct is the amount agreed upon by both you and the lender as interest.

You cannot currently deduct interest that must be capitalized and (except for corporations) you can never deduct personal interest.